Economic Update

Published 29 Mar 2017

Increased export opportunities in the region should help drive further growth in the Philippines’ agriculture industry, which expanded strongly last year after overcoming the impact of natural disasters.

This month the country signed a $1bn agreement with China to step up imports of Philippine agricultural products. This new deal comes on top of a $100m farm produce import agreement signed ahead of President Rodrigo Duterte’s state visit to Beijing last October.

The agreement with China represents a significant boost for the agricultural sector in the Philippines, with the value of the deal roughly equivalent to revenue from farm exports for the fourth quarter of last year.

China deal

Among the produce covered by the new trade agreement are durian, avocado, banana, pineapple, coconut, mango, dragon fruit, mangosteen, marang, rice, coffee, cacao, and chicken and duck meat, Ramon Lopez, secretary of trade, told local press at the signing.

Officials have said that China is also looking to ramp up imports of seafood products, including crab, shrimp, prawns, tuna and milkfish.

This should come as a welcome development to farmers, who saw access to the Chinese market interrupted last year. China curbed some imports of Philippine agricultural goods on concerns over high levels of chemical pesticides found on some produce – notably bananas – and pest infestation in some other shipments.

Increased export opportunities could see higher levels of investment flow into agriculture and the agri-processing industry, as both primary producers and downstream sectors seek to take advantage of rising overseas demand.

Growth industry

Though the economy has shifted towards a far broader manufacturing base, the agriculture sector remains a significant contributor to trade, according to data from the Philippine Statistics Authority (PSA).

For example, while manufactured goods accounted for around 86% of exports in the final quarter of 2016, agro-based products represented some 7.2% of outbound shipments, putting the sector in second position overall for exports over the period.

Despite a contraction in agricultural output over the year, agricultural exports were up 42.2% year-on-year in the fourth quarter of last year, reaching $1.03bn.

However, extreme weather events cut output from the farming and fisheries segments, contributing to a year-end fall in production of 1.4%, according to PSA data.

Early losses resulting from drought conditions were compounded by the impact of Typhoons Karen and Lawin in the fourth quarter, with resulting crop production down 3.3% for the year. At the same time, however, revenue from the crops segment rose by 2.6% to P268.8bn ($5.4bn) over the year, breaking the record set in 2015.

While the fisheries segment posted a 4.1% y-o-y drop in output in the last three months of 2016, earnings fell by just 1.5%, softening the blow.

Solid overall annual gains of 3.4% in farm gate prices helped sustain sector growth, with the continued strong performance in exports a contributing factor to earnings. Indeed, the gross value of agricultural production was up 1.35% from 2015.

Pests and pesticide

Last year’s restrictions by China on some agricultural imports underscored a problem faced by many of the Philippines’ farmers, and one that could restrict gains from newly opening markets.

For the Philippines to capitalise on its agricultural export potential, primary producers and the authorities will need to strike a balance between combatting plant infestations and keeping the use of chemicals within the limits set by trading partners.

While chemicals are necessary for some crops to be pest-free, a requirement of most import markets, pesticide residue found on fruit and other produce at above-mandated levels could result in shipments being rejected or destroyed. This was the case in China last year, when 35 tonnes of tainted bananas were dumped.

In late 2016 South Korea announced it was raising the bar on chemical residue on fruit imports, setting the target of zero chemical contamination. This move may put Filipino growers under greater pressure to maintain their strong position in the market, especially as a banana supplier.

Exporting opportunities

In many regions at least, domestic farmers are winning the battle over natural pests, opening door to new export markets.

Last October the Philippines and Australia upgraded their specific commodities understanding (SCU) to allow for the export of locally grown mangoes to the Australian market, with the exception of those produced in the Palawan region, where infestations remain. The amended SCU acknowledged the Philippines’ pest-free status for seed and pulp weevil.

The relaxing of these restrictions on mango exports is a major step forward for producers, a Australia has some of the world’s tightest agricultural import safety and quality controls, enacted to protect its own farming and export industry. Receiving their green light for imports could encourage other strictly regulated markets to open up further to Philippine produce.